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What Xceligent’s Bankruptcy Says About the Property Data Business

Some in the sector lamented the loss of another competitor in an increasingly narrow field.

In the wake of commercial real estate data firm Xceligent filing for bankruptcy protection, the property data industry was not surprised—it’s an expensive field to be in. Still, some in the sector lamented the loss of another competitor in an increasingly narrow field.

Before it filed for Chapter 7 liquidation, the firm was embroiled in a lawsuit with real estate data giant CoStar Group Inc. The lawsuit will now fall under the jurisdiction of the bankruptcy court in Delaware, where Xceligent filed its case—a move that puts more knots in an already thorny case. “It complicates things even further. It delays things even further,” says Carl W. Hittinger, partner in the Philadelphia office of law firm BakerHostetler.

Last year, CoStar sued Xceligent in federal court in Missouri, where Xceligent is headquartered, alleging the company had stolen copyrighted commercial property information, which CoStar sells for a subscription fee, and re-sold the information for a lower price. In June 2017, Xceligent denied the allegations and in turn alleged that CoStar engages in anti-competitive practices to raise competitor prices, drive competitors out of business and keep its “monopoly” on the commercial real estate information industry. Last week, Xceligent, owned by the London-based Daily Mail and General Trust PLC (DMGT), filed for Chapter 7 bankruptcy and will seek liquidation. It immediately shut down its website and laid off hundreds of employees.

“DMGT had fully impaired Xceligent at the end of [fiscal year 2017], following weaker than expected revenues from its NYC rollout and other challenges, including lower renewal rates,” wrote Alex Moorhouse, head of communications at DMGT, in an email. “Ultimately, in light of these challenges, the Xceligent management team was unable to identify a way for it to operate on a sustainable basis and recommended filing for Chapter 7 liquidation. The CoStar litigation was not a direct factor, but of course did create additional cost for the business.”

Executives from other commercial property data providers—including CoStar—were not surprised by this move. CoStar had anticipated that Xceligent might go bankrupt, says Max Linnington, executive vice president of sales at the firm, claiming some of Xceligent’s clients over the past half year had begun to switch to CoStar. “That was a leading indicator,” he notes.

Moorhouse declined to respond to CoStar’s comments.

Meanwhile, the firm’s exit from the field has opened up new business opportunities for its competitors. A google search for Xceligent brings up ads from firms including Property Shark and CrediFi offering themselves as alternative service providers to Xceligent’s clients. Employees from CoStar and 42Floors, a San Francisco-based website that also has a national database of commercial property listings, have reached out to brokers, so transactions could continue without interruption. An executive with RealMassive, a listings marketplace, said it reached out to former Xceligent employees for support.

“No one wants to see a good company—even a competitor—go down like that, because there are so many people’s lives affected,” says Jason Freedman, CEO of 42Floors, which was formed in 2011.

Unable to compete?

While antitrust claims are difficult cases to prove, filing for bankruptcy may lend some credence to Xceligent’s claim that it was unable to compete, says Andre P. Barlow, partner in the Washington, D.C. office of law firm Doyle, Barlow & Mazard PLLC. “Clearly the damages are much larger now, because now we’re talking about the loss of the business,” Barlow says. CoStar’s dominance in the sector was compounded by its 2012 acquisition of marketing platform LoopNet.com, which was approved by the Federal Trade Commission (FTC) as long as CoStar spun off Xceligent from LoopNet and adhered to a set of conditions that would allow competition to thrive. “The behavioral solutions that the FTC required in allowing that merger didn’t appear to work here,” Barlow adds. Moorhouse declined to comment on the litigation, as DMGT is not involved.

However, bankruptcies happen, even in light of the FTC’s review, according to Hittinger. “That’s just the competitive world we live in. There are casualties,” Hittinger says. However, while antitrust laws are not designed to prop up inefficient businesses, these laws still protect against anti-competitive practices that could lead to bankruptcies, he notes.

Still, Xceligent’s liquidation could put a chill on others trying to compete with CoStar, which has a history of litigation against other commercial property data companies, including LoopNet, Barlow says. “It certainly makes it difficult for all these smaller competitors to exist and to grow,” he notes.

According to Linnington, though CoStar is dominant in its field, it embraces competition and will continue to innovate. Accusations that the company is anti-competitive are “fictional,” he says.

Competition is good for the industry as it creates an incentive for innovation and more options for the brokers, says Kevin Green, vice president of marketing for Austin, Texas-based RealMassive, which also settled a lawsuit filed by CoStar in 2016. “Now there’s one less choice for brokers in the marketplace,” he notes. While it may be too soon to tell how the case with Xceligent—and its subsequent bankruptcy—will affect the industry overall, Green says there is still room for players with different value propositions. “The market is made up of different brokers and people who have different needs.”

What lies ahead

Xceligent’s fall points to what some in the industry—not affiliated with CoStar—say is a fundamental business issue: It is difficult to have enough human and capital resources to match CoStar’s database, one the company has constructed over three decades, and finding new ways to create such information more efficiently.

“People underestimate what it takes to build a property database, and all the research that goes into building a database like that,” says Andrew Bermudez, CEO of Digsy AI, a commercial property interface which is based in Fullerton, Calif. and was founded two-and-a-half years ago. Even if a company were to match CoStar’s reach—as Xceligent was attempting to do—many brokers would be prone to stick with whatever service they were using, Freedman notes. Commercial brokerages are not required to use CoStar—unlike the MLS on the residential side—but many do, sometimes in addition to internal databases.

While Bermudez does not fault CoStar for filing a lawsuit against Xceligent—“It would be irresponsible to them to not try to protect its asset,” he notes—he says the industry itself is in need of disruption. Similarly to how crowdfunding has shifted the fundraising industry, “The paradigm needs to change all together, taking economics and process and human resources into account,” he says.